The Dollar "Crisis"
FOR some time after Great Britain's departure from the gold standard it appeared as if this act would bring about an international monetary collapse. Few people believed that vulnerable currencies such as the reichsmark, the Austrian shilling, the Hungarian pengo, or even currencies such as the lira, would be able to stand the strain caused by the psychological effect of the change. It appeared for some time as if the conditions of the post-war currency chaos would return. Confidence in the stability of all but three or four currencies disappeared. Forward reichsmarks were for some time absolutely unsaleable, and there were no buyers even at a discount at which a purchase would give a "yield of something like 75 per cent per annum. While this wave of distrust in vulnerable currencies was not altogether unreasonable, towards the beginning of October it was inclined to assume ex-
The unprecedented size of the gold effiux caused considerable alarm allover the world. In the past, the fact that a central bank parted with gold freely was always regarded as a reassuring sign, and tended to restore confidence. It is an oldestablished rule that the best way for a bank to meet a run is to payout freely, as in doing so it may allay the depositors' fears. During the second half of 1931, however, this rule did not seem to have operated satisfactorily. In the case of both. the Reichsbank and the Bank of England, the heavy effiux of gold, far from restoring confidence, accentuated the uneasiness, and aggravated the crisis in consequence. It was feared that the same would be the case with the United States. It was not realized that there was a fundamental difference between the position of Great Britain and Germany on the one hand and that of the United States on the other. While the external short-term liabilities of the two former countries were much in excess of the gold reserves of their central banks, the external short-term liabilities of the United States were covered about twice over by her gold stock. It is true that the whole of her gold stock could not be regarded as being available for export, as, on the basis of the Federal Reserve regulations,
the greater part of the gold reserve had to serve as note cover. But the amount of free gold was none the less considerable, and, if it came to the worst, the Federal Reserve regulations could have been suspended.